France fights a scary case of Italian flu 11 Nov 2011 The French bond market is starting to flash warning signals. The trauma of the Italian rout is partly to blame, but France’s own creditworthiness isn’t pristine either. If investors start to think of it as risky, the euro zone crisis will enter a whole new, dangerous phase.
SocGen dividend cut better than capital-raising 8 Nov 2011 The French lender is aiming to plug a third of its 3.3 billion euro capital deficit by scrapping its dividend. Investors may complain. But with SocGen shares down almost two-thirds since February, skipping a payout is better than the risk of dilution from an equity issue.
For France, fear is a powerful fiscal force 7 Nov 2011 The French government has opted for more fiscal tightening to meet deficit targets in spite of the slowing economy. It’s heavy on taxes and light on spending, but there wasn’t much of a short-term choice. A credit downgrade would signal the end of Sarkozy’s meagre re-election hopes.
Euro zone not yet ready for Greek game of chicken 3 Nov 2011 Merkel and Sarkozy have threatened to cut Greece loose if it doesn’t back the latest bailout plan. But Europe isn’t prepared to handle the backlash. With barely a month to get its act together and a history of dysfunctional decision-making, there’s a big risk of a mega crash.
France can’t afford major euro split with Germany 21 Oct 2011 Divisions over the euro zone’s bailout fund have delayed the much-ballyhooed Franco-German “grand plan”. Nicolas Sarkozy seems ready to compromise yet again to keep Angela Merkel on board. He knows the euro zone wouldn’t survive a major split between Paris and Berlin.
Sarkozy’s euro warning smacks of desperation 19 Oct 2011 As Moody’s says it might change its view on France’s triple-A ratings, the French leader warns gravely about the euro ahead of next week’s EU summit. But seven months before the presidential election, it’s his future he’s really talking about.
Air France-KLM will struggle to gain altitude 18 Oct 2011 The Franco-Dutch carrier is being squeezed on all sides. It has high costs, stiff competition and large debts. Market conditions are poor, too. Changes to the boardroom crew will help if they approach restructuring seriously. But investors are right to be sceptical.
French socialists tempted to move backwards 10 Oct 2011 Voters in the first round primary of France’s main opposition party gave former labour minister Martine Aubry a surprising strong second place behind centrist Francois Hollande. The party faithful may be tempted by her old-style ideology. That’s exactly what France doesn’t need.
Sarkozy’s short-termism driven by triple-A fears 10 Oct 2011 The French president’s stances on restructuring Dexia and recapitalising euro zone banks are driven by the obsessive fear of losing the nation’s top rating. The risk is that this might precipitate short-term fixes, which would make a downgrade even more likely.
France and Belgium can’t assume Dexia is a one-off 4 Oct 2011 State shareholders have pledged to ease the stricken bank’s liquidity problems by guaranteeing its debt. But shaky sovereigns have less firepower than they did in 2008, and other lenders may need similar help. Euro zone banks need a more comprehensive funding solution.
Dexia rescue would need more than just capital 3 Oct 2011 The Franco-Belgian bank’s shares have slumped amid fears it needs a second bailout in three years. Helping Dexia cope with a big haircut to its Greek debt is the first challenge. But any package also needs to tackle its reliance on short-term funding, and its unwieldy structure.
France and Italy sitting on share sale goldmine 29 Sep 2011 The halting of Spain’s giant lotto IPO doesn’t change the logic of further asset sales by euro zone members with high debt. It’s not just the peripheral countries. France alone could plausibly raise $50 bln from trimming its holdings.
Qatar risks a foreign investment pile-up 19 Sep 2011 The gas-rich state might have around $100 bln to throw at foreign assets, based on guesses at the size of its sovereign fund. A 7.5 pct stake in Franco-German EADS would cost less than $2 bln. But Qatar’s overseas spending doesn’t look as focused as its domestic growth ambitions.
BNP steps into leaner future with asset sale plan 14 Sep 2011 BNP Paribas is offloading 10 percent of its risk-weighted assets. The euro zone’s largest bank may be strong enough to withstand further write-downs. But this summer’s U.S. funding market strains and market sell-off show it must do more to protect itself.
French bank meltdown begs for government action 12 Sep 2011 SocGen’s plan to dump assets and staff to soothe investors’ concerns couldn’t prevent a meltdown of French banking shares. The government says talk of nationalisation is “premature”. But with another downgrade looming, it might have to step in to avoid a panic.
French banks’ funding flames fuelled by Basel 9 Sep 2011 SocGen and BNP are telling investors their funding is secure, despite the pull-back by U.S. money market funds. But tough Basel liquidity requirements would force them to issue stacks of pricier debt, shrinking returns. Unless the rules are relaxed, the banks’ woes will persist.
Dexia sued for rare thing it can’t be blamed 8 Sep 2011 The Belgian-French bank is being sued by some French local authorities after loans pegged to the strong Swiss franc soared in cost. Dexia may escape the blame for what looks a case of caveat borrower. Its real problems are its messy funding, and sovereign debt exposure.
Taxing the rich makes economic sense 25 Aug 2011 Western governments want the rich to contribute more to their austerity drives. Financially, it won’t do much to cut deficits and debts. But after three years of economic tension, it is a crucial part of making new rounds of tightening politically acceptable. Pain must be shared.
Merkel and Sarkozy live down to low expectations 17 Aug 2011 The Franco-German summit produced proposals for further euro zone integration. But the demand for balanced budgets was unmatched by any promise of more aid for peripheral states, while the mooted tax on financial transactions misses the point. Investors are rightly sceptical.
Balanced budget laws are flawed but not useless 16 Aug 2011 Sarkozy and Merkel like them, and they feature in America, too. But politicians often fudge the numbers, or just change the rules. Nonetheless, in reasonably honest systems such laws slow the build-up of deficits. Perhaps as importantly, they also stigmatize bad behavior.